5 Ways Millennials Can Avoid Boomer Mistakes

One of 2015’s biggest hits came from Twenty One Pilots, an alternative hip-hop duo from Columbus, Ohio that kind of defies genre definition. "Stressed Out" tells the story of 20-something guys who find out fast that adult life has hassles…lots of them. From student loans to pressure to get a job and be successful, the stress is enough to drive them back to the tree houses of their youth - or so they wish. The song is an anthem for a generation now scrambling to make its voice heard.

That voice is already a huge yell! U.S. Census data shows Americans born between 1982 and 2000 now outnumber the baby boomers, and a Brookings Institution study suggests millennials will be over 1/3 of the adult population by 2020 and make up as much as 75% of the workforce by 2025. They’re currently facing financial obstacles that make it tough to make the American Dream their own reality. Our recently released 2016 generational research report touches on some big concerns of this generation that have a definite financial impact, not only on them but all Americans:

The confidence issue. Three out of four millennials in our research reported a lack of confidence in their investment knowledge or how to apply it. This is consistent with 2014 research by UBS, which found millennial investors holding 52% in cash and only 28% in stocks, almost half the level of other investors. The same report said they are highly worried about affording retirement (39%) and healthcare (28%), but skeptical about investing. Only 28% felt long-term investing was a key to success.

While lots of millennials feel cornered by today’s economy, their boomer elders are facing financial struggles of their own. Our research found that only three in ten boomers are on track for retirement, which may be putting the other seven in ten at risk of delayed retirement. They’re also more unsettled about their investments. The stagnant market of 2015 shook their confidence as 57% of them feel uncomfortable about their investment knowledge. The BlackRock 2015 Annual Global Investor Pulse Survey shows boomers with an average retirement savings of just over $136,000, not nearly enough to fund a 20+ year retirement, especially when the average American holds an astounding 65% of it in cash.

So how can millennials avoid repeating the boomers’ problems and lift themselves out of their own funk?

1. Avoid unnecessary debt. Although millennials hold more student loan debt than previous generations, at least they’re investing in themselves, which can pay lifelong dividends in the form of higher earnings. Set this standard: If it depreciates after it’s bought, don’t finance it, period. If it can appreciate and can be bought at today’s lower interest rates, it might be worth investing in.

2. Build better credit. By paying their student loans and credit cards monthly through automatic deductions, millennials can build a credit score that can help them get the best rates on “good debt” purchases like a home if they want one. They also have the luxury of a free annual credit report at www.annualcreditreport.com and credit monitoring firms like Credit Karma and Credit Sesame to help them monitor their credit—resources their boomer elders previously never had.

3. Start small but start now. Whether their employer has a workplace retirement plan or not, the big advantage millennials have is time for whatever they can save to multiply. The good news is that the Blackrock survey found them most likely to take financial planning seriously (68%). However, they were also the most likely to admit they did not know where to go for retirement advice (45%).

Here’s some guidance: Start by putting enough into your employer-sponsored retirement plan, if available, to capture the entire employer match. Then, if eligible, contribute up to the annual limit to a health savings account. Both will maximize the impact of your savings and give you that head start toward an early retirement. If you have money to save beyond that, open and fund a Roth IRA.

4. Let technology help you save and invest. Today’s investors have the option of target date funds to provide automatic allocation and rebalancing, allowing you to focus on other things besides trying to time the market. Investors can also make automatic contributions to an emergency fund or a Roth IRA, making saving much easier than for the boomers that had to mail in checks or walk into the bank.

5. Embrace workplace financial wellness. A positive trend is the growing movement toward individualized financial education at work to help employees overcome their fears and gaps in knowledge about their finances. Millennials are entering the workplace just as this trend is cresting, and studies show they embrace the concept of overall wellness as a lifestyle.

Our research found that workers with higher financial wellness scores also had higher average retirement plan contribution rates. Based on this observation, a young worker that improves their financial wellness score from a 4.0 to a 6.0 (on a 10-point scale) is projected to improve their lifetime retirement savings by over 27%. By asking for and engaging in financial wellness programs in the workplace, millennials could become the most financially healthy and informed generation ever.

I’m a Resident Financial Planner at Financial Finesse and I provide financial education and guidance to our clients’ employees. I develop content and individualized plans for our clients and assist in our media and client communication efforts. I worked most of my career i...